Bankruptcy protection: Harrisburg awaits decision

Bankruptcy protection – sought by Harrisburg's City Council – goes before a federal bankruptcy judge. Her decision is a first test of whether the city's petition for bankruptcy protection can go forward.

ByMarc LevyNovember 23, 2011

David Unkovic, the Pennsylvania governor's appointee in charge of a state takeover of Harrisburg's finances, answers a question during a news conference on Friday. On Nov. 23, 2911, a federal judge heard arguments on whether Harrisburg's controversial petition for bankruptcy protection should go forward.

HARRISBURG, Pa. — The federal bankruptcy judge who was considering legal issues Wednesday surrounding whether Pennsylvania's debt-choked capital deserves continued protection from creditors in her court focused on the intent of the state constitution and laws.

After hearing more than two hours of arguments from lawyers in the case, Judge Mary D. France said she would decide the matter later Wednesday. The legal issues are a first test as to whether a petition for bankruptcy protection filed by Harrisburg City Council can go forward over the objections of the mayor, Gov. Tom Corbett, Dauphin County, bond insurers and others.

In the meantime, the Corbett administration is moving forward with a takeover of the city's finances, creating a legal gray area over how much authority the state holds while the city has bankruptcy protection.

While admitting that she typically doesn't consider matters of state and constitutional law, France questioned whether a four-month-old state law designed to temporarily prohibit a bankruptcy filing by Harrisburg had met state constitutional standards that demand transparency in the passage of legislation.

She also questioned whether a divided Harrisburg City Council indeed had the authority to go over the mayor's head and file for bankruptcy. Still, she dismissed other arguments made by a lawyer for City Council over why the bankruptcy petition should be considered proper.

The Susquehanna River city of 50,000 is saddled with about $300 million in debt tied to its nearly 40-year-old trash incinerator. Beset by environmental problems and fines for years, U.S. Environmental Protection Agency shut it down in 2003 with about $100 million in debt already piled on it, some of which had gone to finance other city projects.

Faced with the decision to abandon it and clean up the site, or finance an overhaul, City Council voted for the latter in hopes that it would one day emerge as a profitable investment. But the renovation went awry, and ended up being far more expensive. Meanwhile, Harrisburg city residents now pay among the highest trash-disposal rates in the nation, while the facility can't generate nearly enough money to pay the debt.

The divided City Council voted last month to file the Chapter 9 petition in a bid to thwart a state takeover and force concessions from creditors. Mayor Linda Thompson and City Council had been unable to come up with a debt repayment plan, as the city fell tens of millions of dollars behind on debt payments and lawsuits piled up.